Investigating the Causal Relationship Between Bank Credits and Economic Growth: Markov Switching Nonlinear Granger Causality Approach

The relationship between credit and economic growth is one of the issues discussed by economists and recent studies have shown that the relationship between credit and economic growth can be nonlinear. The aim of this study was to investigate the nonlinear Granger causality between the credit variable (which is the most important criterion for financial development) and the economic growth variable. For this purpose, Granger causality in the form of MSVAR model and seasonal data in the period 1383: 1 to 1398: 4 have been used. The results show a nonlinear relationship between economic growth and validity and MSVAR model has better explanatory power than its linear competitor (VAR model). According to this study, in regime one (which corresponds to periods of positive economic growth and high credit growth), causality exists only in terms of economic growth to credit, and in regime two (which corresponds to periods of economic growth and low credit growth) Causality is from credit to economic growth. In other words, in periods of prosperity, an increase in credit cannot significantly boost economic growth, and due to credit constraints in bad economic conditions, an increase in credit can affect economic growth